RAMLA HAMEED,ALAPPUZHA vs. INCOME TAX OFFICER, ALAPPUZHA

Brief Facts of the case are that the assessee did not file a return of income for the Assessment Year 2018–19. Based on information that the assessee had entered into substantial financial transactions during the year, proceedings under Section 147 of the Income-tax Act, 1961 (“the Act”) were initiated, and notice under Section 148 of the Act was issued. In response to the notice under Section 148, the assessee filed his return of income declaring total income of Rs. 7,57,806. During the course of assessment proceedings, the Assessing Officer observed that the assessee had sold land and a building for a consideration of 80 lakhs

Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), which was dismissed by upholding the action of the Assessing Officer.

Dissatisfied with the above order assessee is in appeal before this tribunal Before this tribunal, the assessee contended that the Ld CIT(A) erred in confirming the denial of deduction under Section 48 for the cost of construction of the residential house while computing capital gains. It is submitted that the assessee had purchased a plot of land and thereafter constructed a residential house on the said land without engaging any external contractor. The construction was self-managed and funded by the assessee. The assessee supported the cost of construction claim by furnishing a valuation certificate from a registered valuer estimating the construction cost at Rs.57,00,000/- .The assessee further argued that the valuation of the property by the Departmental Valuation Officer (DVO) was not obtained by the Assessing Officer before rejecting the claim. Hence, denial of cost of construction without referring the matter to the DVO was unjustified. The assessee also raised

The ld. DR relied on the orders of the lower authorities and submitted that the Assessing Officer had rightly rejected the unsubstantiated claim of the assessee in the absence of documentary support.

We have heard the rival submissions and perused the material available on record. The core issue involved in this appeal is the computation of capital gains arising from the sale of land and building and, more specifically, whether the cost of construction of the residential building, claimed at Rs.57,00,000, should be allowed as deduction under Section 48 of the Act. We find that the assessee had filed a valuation report from a registered valuer in support of the cost of construction. However, no reference was made by the Assessing Officer to the DVO for independent estimation of the cost, nor was any contrary valuation placed on record. In our considered opinion, once the cost of construction is disputed by the Assessing Officer, it is incumbent upon the Department to refer the matter to the DVO in order to determine the fair value. The failure to do so has resulted in an arbitrary disallowance of the cost claimed by the assessee. Accordingly, in the interest of justice, we deem it fit to restore the matter back to the file of the Assessing Officer with a direction to refer the property in question to the DVO for determination of the fair market value of the construction as on the relevant date, and thereafter recompute the capital gain in accordance with law. In view of the above, the appeal of the assessee is allowed for statistical purposes with the direction that the Assessing Officer shall obtain a DVO report on the construction cost and other

In terms of the above, the appeal of the assessee is allowed for statistical purpose.